Describe The Key Man Insurance Commerce Essay

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Every company is a sum of its parts. With such importance placed on each individual element of your business it is imperative to insure yourself against the loss of your irreplaceable assets. Buildings, contents and equipment have long been insured by businesses the world over, but what about your employees? As a business owner, you may rely on a number of key people for the successful operation of your company. Many businesses have been built around the strengths and skills of a few individuals whose capital, energy, knowledge or experience makes them a valuable asset to the organization. For example, an individual might have the technical knowledge necessary for research and development of products that keep the company at the cutting edge of its field. The death or disability of this key individual could severely handicap the company. How can you insure against the unexpected loss of these assets ? Key man insurance does exactly that; it acts as a life insurance policy on the key individuals in your business.

Protect your high flyers with key man insurance

KEY PERSON INSURANCE

Providing financial protection against lost revenue, profits and the capital value of your business should a key person suffer a major illness, injury or death.

Key person insurance (also called Key Man Insurance) is a type of Corporate-owned life insurance which insures an employer against the death or incapacitation of a so-called key employee, usually an executive or partner. It is used by both large companies and small partnerships alike. Its a relatively new phenomenon, but has attracted much praise and is encouraged by many strategic advisors. Life insurance is basically a system by which a fixed amount of money is paid to a beneficiary in the event that the person being covered dies. Most life insurance companies offer a type of key person insurance, as it has become more and more necessary in the modern business world. These are those people, who are crucial to a business--the ones whose absence would sink the company. In a small business, he/ she are usually the owner, the founders or perhaps a key employee or two.

An employer may take out a Key person insurance policy on the life or health of any employee whose knowledge, work, or overall contribution is considered uniquely valuable to the company. The employer does this to offset the costs (such as hiring temporary help or recruiting a successor) and losses (such as a decreased ability to transact business until successors are trained) which the employer may suffer in the event of the loss of a key person. This insurance can help preserve the value of the business and its continuation in the event of the death of a key stakeholder in the company. He can be an executive, principal shareholder, a senior scientist or a particularly effective salesperson.

Whom exactly a company wants to cover with key person insurance depends on the nature of the business and its employees. In many partnerships, the founders are crucial to the success of the business and so insuring against the loss of one or more partners is a smart business move. This type of policy is also called: key executive coverage, key person coverage or key employee coverage.

Illustration 1

If a partner of a firm passes away, usually the other partner or partners need to purchase the shares in the business from the family of the deceased. Having insurance permits this to be more easily facilitated where the correct buy/sell agreements are in place. Buy/sell agreements are a written agreement the business enters into to determine each stakeholders' plans should any of them unexpectedly suffer a major illness, injury or death. The cover required is usually determined by the size of the business and the person that is to be insured.

For some businesses, the entire management team might be considered difficult to replace, so key man insurance could be purchased for each member of the team. Some businesses may also have lower-level employees who have built up personal connections with major distributors or clients, whose loss could conceivably cost the loss of those clients. In a small business this is usually the owner, founders or one or two of your best performing employees.

The unexpected death or long-term illness of directors, business partners or key member of staff can ultimately threaten your company's profits or even worse, put the long term future of your business in jeopardy. In a small business, performance can be significantly influenced by the important contributions of just a few members of staff. In nutshell, these people are crucial to your business and their loss would be catastrophic to your organization. Such irreplaceable individuals are exactly those you need to cover with key man insurance.

Key man insurance - cost effective means of protecting your business

The policy is a cheaper option than standard life or disability policies because the policy can be purchased with a "first to die" provision and cover multiple key employees.

Illustration 2

A software company founded by three software engineers could take out a key policy on all three of the founders with a "first to die" provision. Upon the death or disability of one of these founders, the policy would pay benefits to the company. The policy would no longer apply to the two remaining founders. The policy payment would be used to replace the efforts of the first founder (hiring personnel, covering loss of sales, etcetera).

Insurance purchased in this manner would be much cheaper than three individual life policies and three individual disability policies.

Protecting the Business

Loss of a Partner - It is important to think about the possible effect of the death or illness of a partner in a business. Insuring the lives of the partners against death or illness can provide the remaining partners with the necessary funds to let them buy the deceased or ill partner's share of the business. In this way, the partnership's assets remain in control of the surviving partners and the deceased partner's beneficiaries receive a lump sum reflecting the full value of their share.

Loss of a Key Shareholder - In some businesses, the shareholders wish to retain control of the business, perhaps within a family. In these cases, agreements are commonly drawn up between the shareholders to ensure that control of the business is retained. In such cases, it is sometimes worth insuring the life of key shareholders. This ensures that in the event of the death of a controlling shareholder, the insurance payout could be used to purchase the deceased's shares - thereby ensuring that the shares do not pass to other parties. It is wise to seek advice from your accountant or solicitor, as well as from your independent financial adviser, because this is a highly specialized area.

Insurance protection for the owner (Manager or the Self-employed) - If you are self-employed or you own a small business, it is very important that you carefully consider buying the right protection for your own personal needs.

How Key Man Insurance Works ?

A company purchases a life insurance policy on its key employee(s), pays the premiums and is the beneficiary of the policy. The key employee would be the life insured, but would receive no benefit from the existence of the policy. Under the "Income Tax Act" no deduction can be claimed by the employer for premiums paid under a key person policy. If that person unexpectedly dies, the company receives the insurance payoff. However, any death benefit proceeds would be received tax free by the employer and would provide the liquidity needed to hire and train new skilled individuals and provide cash flow through a period of sales decline. The reason this coverage is important is because the death of a key person in a small company can cause the immediate death of that company. The purpose of key person insurance is to help the company survive during the adjustment period and the blow of losing the person who makes the business work. When a death or disability occurs, the business may lose critical management skills and may experience periods of falling sales and productivity and replacing the expertise and knowledge of an essential individual can take time and money which can jeopardize the continuity of the business. It is quickly becoming a mainstream type of business cover as the proceeds of this insurance can help with :

Reduce the financial impact of the untimely death of a key individual by covering the expense of finding and training a suitable replacement

Covering the cost of reorganization

Paying off outstanding finance/ debts

Help heirs meet estate tax obligations without compromising or dissolving a family business

Purchasing shares from a deceased shareholder's estate

Keep the business running and assure creditors and customers that the company will operate as usual

Pay severance to employees and close the business down in an orderly manner

Hence, if you are covered by key man insurance, the unexpected death of a key employee will result in a payout, enabling your business to survive financially, enduring and battling through a difficult situation and in a tragic situation, gives the company some options other than immediate bankruptcy. Many banks and investors now require key man insurance to be in place before giving finance to a company.

If the company is a sole proprietorship and employs just you and no other employees or has no other people who depend on it, then key person insurance isn't as necessary. It is noticeable that here family is not mentioned- key man insurance should not be confused with personal life insurance. If you have a spouse and/or children who depend on your income, then you should have personal life insurance for that purpose.

Illustration 3

Paul Smith is the owner of a growing software company that employs 20 full-time workers. He relies heavily on Frank, his manager, to look after the day-to-day operations of the business while he is out dealing with clients and looking for new business. Frank dies suddenly of a massive heart attack. Obviously this has an emotional impact on the company but it also has a financial impact. The "key person" life insurance policy that Paul has purchased on Frank's life provides the company with a tax free lump-sum payment, enabling him to overcome what might have been a deadly blow to his business. The insurance provides immediate cash to cope with reduced profitability, resulting from his manager's absence. There will also be funds available to pay an employment agency to find a replacement and reassure creditors that company is on solid footing.

Let us understand in detail the reasons why your business needs life insurance and what it can do to help achieve your business objectives.

Provide death benefits for your key employee - The proceeds of a business life insurance may be used to provide death benefits to a key employee who has died while in service. You may choose to insure as many key employees as you deem appropriate, taking into account the contribution of these individuals into the foundation, growth and success of your business. In the process of selecting insurance coverage for these individuals, it is important to take into account the costs involved in replacing these people. This will help you ensure that your business is insulated from risks and costs associated with the loss of an important employee.

Business life insurance for business continuity - If a key executive, a partner, or an employee with a unique set of skills has died, your business may suffer from potential decline in revenue and profit. In the worst case scenario, business operations may come to a standstill. You may need to train new people to replace the vacant position; and doing so almost always necessitates cash outlays. The proceeds from your business life insurance policy may be used to finance such activities, for the continuity and survival of your business.

Use the proceeds in purchasing shares - If the partners or shareholders within a company have reached an agreement that shares may be purchased by the business in the event of death of anyone among the shareholders and partners, then the proceeds of the policy may be used to purchase shares from the surviving family members of the deceased partner.

Retirement funds - Business life insurance may also be taken out in order to provide retirement funding to key employees in case that they outlive the period of the insurance policy. Even though your company will be offering separate retirement packages to your key personnel, the cash value of the policy may be used to supplement these retirement funds.

Provide income to surviving family members - If you, the business owner, meets an untimely death while the company is in operation, the proceeds from the business insurance policy may be used to help your family survive while business cash flows remain unstable. Business owners can take out business life insurance policies for themselves as well as for the key individuals within their business.

Whether you're looking for a policy that lasts only up to 20 years or a more permanent insurance policy that offers flexible premium payment options, obtaining business life insurance or key man insurance is one long-term planning strategy that is beneficial, both for your business and for your valuable employees. The cost of this coverage can often be defrayed as a business expense on company taxes (see your tax professional). The cost is often cheaper because it is sold as a term product usually for fifteen to twenty years and often corresponding to the most productive work years of the employee or officer. Your company may not need this coverage, but even engaging in the analysis of whether this coverage is necessary is often helpful. Do the analysis and consider what you would if employee 'X' was not able to work tomorrow.

How to determine who needs this insurance?

Look at your business and think about who is irreplaceable in the short term. In many small businesses, it's the owner who holds the company together--he may keep the books, manage the employees, handle the key customers and so on. If that person is gone, the business pretty much stops.

How much key person insurance do you need ?

That depends on your business, but in general, you should get as much as you can afford. Shop around and get rates from several different agents; most life insurance agents will sell you a key person policy. Be sure to ask for term insurance--many agents will push whole or variable life, which have much higher premiums and commissions but are unnecessary for a key man policy. Ask for different sum assured quotes and then compare the costs of each. Then think of how much money your business would need to survive until it could replace the key person, come up to speed and get the business back on its feet. Buy a policy that fits into your budget and will address your short-term cash needs in case of tragedy.

Merits of Key Person Insurance

Enhances the ability of the business to continue operations.

Fosters smooth sale of a going business between an estate and a purchaser by providing funds to buy out the interest of a decease key person.

Encourages key employees to stay on the job.

Attracts new key employees.

Provides funds for expenses of hiring and training of a replacement key employee.

Provides a line of credit (a permanent life insurance policy has cash values that are available for loans at advantageous rates).

Policy proceeds, which are income free, are payable even if the key person is no longer in the employment of the business at the time of death, however, the business must continue to make the premium payments after the key person leaves the employment.

A life insurance policy can be surrendered for its cash value or sold to the insured key person, thus, the business will usually at least receive.

The return of premiums.

Long-term disability income insurance on a key person also provides funds for salary continuation to the disabled key person (for temporary disability, the business might prefer to self insure because the expense of premiums for this coverage is generally excessive when compared with the potential income benefits.)

Life and Critical Illness Insurance

life insurance and critical illness insurance will pay out a lump sum on your death or the diagnosis of certain specified serious illnesses.

Depending on your age, sex and health, this can be an inexpensive yet valuable cover.

There are also different types of insurance designed to pay a regular income if you are unable to work because of illness, injury or accident.

The benefit is agreed when you take out the policy. It is usually paid weekly or monthly and is subject to a maximum of two-thirds of your normal earned income, though it can be far lower.

The benefit is only paid while you are unable to work and continues for a limited period, often one or two years. Income protection insurance and personal accident and sickness insurance are both common names for policies of this type.

The terms and costs vary widely. Get advice from your independent financial adviser to make sure you choose the policy that's right for you.

Private Medical Insurance

Private medical insurance covers the cost of private medical treatment for acute conditions.

It allows you to receive treatment quickly, or at a time of your choosing, thereby minimizing the disruption to your business.

There are different sorts of policies from low cost with limited cover to those offering wide-ranging cover and benefits. These can be tailored to your needs.

Seek independent financial advice to make sure you get the right policies and the right cover.

Insurance as an employee benefit

Life and health insurance is a valuable benefit to provide for your employees.

it can often be easy and relatively cheap to provide, and plays a major role in helping you attract and retain good quality employees.

It is possible to buy life insurance for employees individually, but more commonly businesses take out life insurance for a whole group of employees. This is called group life insurance and can be arranged alone, though it is also often found linked to a pension arrangement.

A group life insurance scheme might include all employees who have been working in the business longer than a certain period, such as six months.

Usually, the lump sum insured for each employee is a multiple of their wage or annual salary, subject to a maximum of four times annual salary. Employers might also set age conditions, e.g., insuring only employees over 18 and under 65.

it is also possible to buy critical illness cover for your employees, though this is less common, and is usually combined with a life insurance arrangement.

There is a range of other types of insurance for your employees and the need to provide these benefits may depend on the need to compete with other businesses for the best employees.

Other types of insurance offered as Employee Benefits include:

private Medical Insurance - pays for the treatment of agreed acute conditions

Income Protection - pays regular income to employee who is unable to work because of illness or injury.

Note : Choosing and introducing employee benefits is a highly specialist area and is well served by independent advisors.

Points to Ponder

Keyman insurance is a pure term insurance plan taken by a Company for its key employees whose premature death would cause a financial loss to the organization.

The premium on such policies has to be paid by the Company.

The premiums paid on such policies are considered as business expenses and the proceeds of death claim too are paid to the Company.

There are certain conditions which are enforced by insurance companies while accepting keyman insurance proposals :

Keyman insurance cannot be granted to the proprietor other major shareholder in the company proposing the keyman insurance.

Normally keyman insurance will not be allowed in case the keyman holds more than 25 % of the share capital of the Company. Similarly keyman insurance cannot be granted in case the keyman together with family members holds more than 50 % of the shares of the Company. The family members for this purpose are defined as spouse and children only. The underwriters may consider the case even when the family shareholding exceeds 50 % provided, the number of shareholders are more than 100 and the number of employee are also more than 100.

Normally Keyman insurance will not be granted to the partnership firm on the life of a partner, unless it is established that the partner is active in the business of the firm and in case of death or illness of the partner the other partners may not be able to continue the business of the firm. Please note that the keyman insurance is not offered to replace the partnership capital of the firm, but to protect the firm against business losses due to the death or illness of the keyman.

Keyman insurance cannot be granted to loss making companies/ firms.

In an unfortunate event of simultaneous death of both the policyholder and the nominee, the claim amount is paid to the legal heir of the policyholder.

BUSINESS ASSETS AND LIABILITIES INSURANCE

Owning and operating business comes with plenty of responsibility and accountability and the owner should be aware of the possible pitfalls that they can encounter during their business's operation. We live in a litigious society and the probability of having a lawsuit filed against your business continues to rise these days. Even if you operate with utmost care and provide the best quality and services, a client can perceive, you did them wrong. This is why liability insurance for businesses is highly recommended for all businesses regardless of their size. Often referred to as 'Business Liability Insurance', 'Commercial Insurance', 'Asset Protection Insurance' or 'Shareholder Insurance' because it does exactly that, protects assets and shareholders.

You can also protect your premises, business assets, tools, plant, machinery, contents, stock, furniture, office fittings and vehicles and protect your business from loss of income against fire, burglary, theft, flooding, subsidence, landslip, earthquake, hydrothermal or geothermal activity, volcanic eruption or tsunami. The impact of these can be immediate and devastating, leading to severe disruption, which in turn will inevitably impact on your profits. When arranging insurance, you may cover buildings and plant equipment for their full replacement cost and allow for seasonal increases in stock values.

BUSINESS LIABILITY INSURANCE

Business Liability Insurance also known as Commercial General Liability (CGL) may be the only type of business liability insurance you need depending on your business situation. It will protect your business assets in the event you are sued. Now days, lawsuits are clogging the courts and hence you want to maintain a sufficient amount of liability insurance protecting the business you've worked so hard to build. Your company can be sued for something it did - or even didn't do - that resulted in injury or damage to someone else. Hence, it protects your business in the event of a lawsuit for personal injury, property damages and court awards for lawsuit damages. This insurance will not only pay the cost of the damages but also the legal fees and other costs associated with your defence in a lawsuit. However, standard liability insurance or umbrella liability insurance will not protect you against claims arising from non-performance of a contract, wrongful termination of employees, sexual harassment or race and gender lawsuits. But more specialized liability insurance such as Employment Practices Liability Insurance (EPLI) will protect your business against these claims. For non-performance of a contract and most breach-of-contract matters where there was a loss because the terms of a contract were not fulfilled, a surety bond is taken out as insurance to protect the recipient.

Business liability insurance will usually cover the damages form a lawsuit along with the legal costs. Legally, there is a term called 'criminal wrong' (when the law is broken like trespassing, theft, assault), which everybody is familiar with and there is a 'civil wrong' (law dealing with disputes between individuals and/or organizations), which is often called as 'Tort'. For example; if a car crash victim claims damages against the driver for loss or injury sustained in an accident, this will be a civil law case. Civil lawsuits typically do not result in imprisonment, but, often judgments or rulings are passed where one party is awarded damages. 'Negligence' is the most common civil wrong (covered in detail in chapter 6). Business liability insurance can help protect your businesses from the ruinous and devastating effects of large negligence lawsuits. Depending on your business needs, liability insurance can be purchased in many forms.

Hence, this form of business liability insurance is the main coverage to protect your business from :

Injury Claims

Property Damages

Personal Injury (Including Slander or Libel)

Advertising Claims

In addition to covering the claims listed above, CGL policies also cover the cost to defend or settle claims - even if the claims are fraudulent. It protects your business against financial loss resulting from claims of injury or damage caused to others by you or your employees. (Some coverage may not be available on all policies or in all states). CGL coverage pays for the injured party's medical expenses. It excludes your employees, who are covered by workers' compensation. It should be noted that even trespassers can sue you if they fall and get hurt on your business premises. There are three types of legal damages people may sure you for that are typically covered by a CGL policy :

Compensatory Damages - Financial losses suffered by the injured party and future losses they may suffer resulting from an injury they claim in the lawsuit.

General Damages - Non-monetary losses suffered by the injured party, such as pain and suffering or mental anguish.

Punitive Damages - Additional penalties and charges the defendant must pay.

Standard liability insurance does not protect a business against :

Claims from sexual harassment, wrongful termination of employees, failure to employ or promote or race and gender lawsuits - These and other employee-related claims are covered by employment practices liability coverage. The cost of employment practices liability coverage depends on a business' number of employees, whether there is a history of the company having been sued in the past, and other business risk factors. The policy also pays for legal costs associated with a company's defense of a lawsuit related to employment practices.

Claims related to operating an automobile or truck - If you own vehicles for your business, whether for deliveries or client consultations, you will need separate commercial automobile coverage to protect you and your employees against liability claims resulting from car accidents.

Automobile liability insurance is required by most states. It covers medical expenses and damages to another person's property as a result of a motor vehicle accident caused by the insured's negligence. Some states mandate "no fault" auto insurance, which provides coverage for medical expenses, rehabilitation, funeral expenses, lost wages and in-home assistance to the driver and his or her passengers, regardless of who is held at fault in an accident. Many policies offer or include uninsured or underinsured motorist protection, which provides coverage for the insured and his or her passengers if they are injured in a collision caused by an uninsured or underinsured motorist. If your vehicle is primarily used for business, make sure your company's name is on the policy instead of your personal name to avoid complications later should you need to file a claim (for further details, see chapter no. 8).

What is covered by Business Liability Insurance?

The expenses that can be covered will vary, but typically you should look for the following to be included:

Judgments, Damages and Awards

Court Fees

Legal and Attorney Fees

Lost Productivity

Transportation Costs

Lost Profit

Loss of Use of Damaged Property

Lastly, there are many small things you can do to greatly reduce your liability expense. For example, you can follow insurer' s recommendations and increase safety precautions at your work place and install the proper protection devices, such as; radon detectors, carbon monoxide detectors and smoke detectors. There are other ways to make a dent in your insurance cost, by hiring outside consultants to create risk reduction reviews and implementing their suggestions. Also consider having your vendors and clients sign agreements that limit your risk exposure and suggest that your partners, clients and vendors agree to settle any potential conflicts through binding arbitration. It can also help to have your vendors, partners, and clients name you as an insured party on their insurance. If your business is named on any other company's policy as an insured party, be sure to mention that to your insurance agent as it can help reduce your business insurance premiums.

Who Needs Business Liability Insurance?

Over 78% of all U.S. businesses are structures as a partnership of sole proprietorship, according to www.bizstats.com. For the majority of small business owners, this form of ownership puts your business and personal liabilities at risk. Owning business liability insurance protects both your business and personal life from financial ruin.

A common misconception of a Limited Liability company (LLC) or an Incorporated Company is that a business owner is protected from Personal Liability and Liability Insurance is not necessary. You can be personally liable if :

you have signed a personal guarantee for a loan

personally you have injured someone

you have acted in an irresponsible or illegal manner

you do not operate your business as a separate entity

Negligence Coverage

Commercial or business liability insurance can cover you against negligence. Let us understand this by few examples.

Example 1; somebody slipping in your place of business. While you may not have done anything to contribute to this person falling or any injury that was a result, you may be liable. The person who fell may say your floor was more than reasonably damp or that a floor mat had a bump in it.

Example 2; at your work place, one person is walking in and the other one is walking out. In this example both parties may be injured and make the claim that the door didn't have the proper safe guards or signs to prevent this injury.

Sometimes the effect of this negligence is so quick that one does not even get time to react to it and you tend to lose all your effective labour which you may have put in your organization. Negligence lawsuits are among the fastest growing categories of lawsuits being filed today. So how do you form a comprehensive liability insurance strategy to protect your business? The answer varies state by state. In many states, business liability insurance is required by law. It is absolutely critical not only for affordability of your policy but also for your protection to get insured in the correct category. Let us see some related examples.

Example 1; if your business is into retailing of goods and also offers services, what percentage of your business revenue comes from the products versus the services which can have a significant impact on your premiums.

Example 2; if your manufacturing business makes consumer plastics but your business is classified as a business manufacturing company instead of a consumer manufacturing company. This simple misclassification in your policy, which is one small line item, could double your premiums. It is important to work with an insurer that had a good understanding of your business and risk profile so your business be properly categorized and insured.

Many vendors, strategic partners, and outsourcers require that your business have commercial insurance simply to enter into an agreement, as they understand you may not be able to fulfil your obligations if your assets are seized in a legal battle. Often there is a cost advantage if business liability insurance is combined with worker's compensation insurance, but not always.

Hence, in today's controversial society, liability insurance is more essential than ever and as a business owner, it is your responsibility to give your company the protection it deserves from any liabilities and by determining which liability insurance is ideal for your needs. There are several different types of liability insurance for businesses that are sold. General liability insurance covers advertising claims, injury claims and property damages. This type of liability insurance is often considered to be the most important insurance to have. Those who are offering services to their customers should also cover themselves with professional liability insurance in case of malpractice, omissions, negligence and errors. The product liability insurance, on the other hand, is for businesses that are either manufacturing or selling products. In instances where a customer gets hurt while using your product, product liability insurance will help protect you from lawsuit. In general, commercial general liability enables your business to continue operations while it faces real or fraudulent claims of certain types of negligence or wrong doing.

These types of insurance can protect you from lawsuits resulting from :

Any bodily injuries the occur on your premises to customers, employees, vendors, or visitors;

Injuries sustained as a result of the actions or negligence of one of your employees;

Property damage caused by your employees.

In most states business liability insurance is also known as a Business Owner's Policy (BOP) which breaks down into three large categories.

The three primary categories of business insurance :

General Liability Insurance

Professional Liability Insurance

Product Liability Insurance

General Liability Insurance - Also known as Commercial General Liability (CGL) may be the only type of business liability insurance you need depending on your business situation. This form of business liability insurance is the main coverage to protect your business from injury claims, property damages and advertising claims. It is the primary coverage vehicle for a business. This type of policy can cover; slander, libel, personal damages, property damages and miscellaneous other injuries you or your employees may have caused by accident or through negligence.

Professional Liability Insurance - This liability insurance covers employers or business owners who provide services to their clients during the course of his everyday work known as errors (faulty service) and omissions. This coverage protects your business against malpractice, errors, negligence and omissions (failure to provide a service altogether). It is essential in the service industry which protects professionals from personal claims against them for errors made while they are performing their services. Examples of such insurance include malpractice insurance carried by doctors, or errors and omissions insurance carried by financial advisors, attorneys, lawyers, consultants, architects, accountants, building contractors and other professionals. Depending on your profession, it may be a legal requirement to carry such a policy. Doctors require coverage to practice in certain states. Technology consultants often need coverage in independent contractor work arrangements. As with other liability insurance policies, premiums for professional liability coverage also depend on the type of professional service being provided and its level of risk.

Product Liability Insurance - This liability insurance is the form of insurance which protects a business against suits and claims based on accident, injury, death or something wrong caused by product a business creates and/or sells. Small businesses selling or manufacturing products should be protected in the event of a person becoming injured as a result of using the product. The amount of coverage and the level of risk depend on your business type. A retailer of scrap book supplies will have far less risks than a wood stove builder. From toy manufacturers to car manufacturers, there can be a significant risk of injury from the produced product. A notable example would be the millions that presidential candidate John Edwards' client was awarded as a plaintiff. In this case, the jury found that a tiny rubber piece of pool equipment contributed to the death of a small child. Product liability insurance has a very wide range of coverage and cost depending on the specific risk profile of your business. Also if your business is a specialty or niche business it may be harder to find affordable insurance, as there are less comparable reference companies for the insurance underwriter. The amount of coverage will depend upon the type of product being manufactured, level of risk on your business type. Safety measures in place and precautions taken are factored in when determining your premium.

Some other type of business insurances are :

Employment Practices Liability Insurance (EPLI) - this coverage insures a business against the actions of the employer. The increase in lawsuits filed for wrongful termination, sexual harassment, and/or discrimination has fueled the need for Employment Practices Liability Insurance (EPLI). This type of insurance protects you as the employer against such claims made by employees, former employees, or business associates.

Worker's Compensation Insurance (liability without fault !) - The employer is held absolutely liable for job-related accidents and disease regardless of fault. It protects a business owner from claims by employees who suffer a work-related injury or illness. In all states, most companies are required to carry workers' compensation insurance for their employees. Typically, workers' compensation covers the employee's medical expenses, rehabilitation costs and missed wages. According to the Small Business Administration, business owners, independent contractors, domestic employees in private homes, farm workers and unpaid volunteers are usually exempt from workers' compensation eligibility. If this is the first time you're purchasing workers' compensation insurance, the rate will depend on your payroll and your industry. After a few years, your premiums may be based on the actual experience of your company.

Umbrella Liability Policy - It provides extra protection above a standard policy. Umbrella policy coverage limits are typically within the $1 million to $5 million range and are appropriate for business owners who have large assets or may be especially vulnerable to lawsuits.

Crime Insurance - It protects businesses from theft and malicious damage, such as employee embezzlement.

"E-insurance" or Internet Business Insurance - It covers Web-based businesses for damages caused by computer hackers and viruses.

When buying liability insurance, you can purchase either:

an "occurrence policy" or

a "claims-made policy"

an Occurrence Policy - An occurrence policy can cover the claims made after the incident has occurred may be months or even years. The insurance company is obligated to review and if warranted, pay for any claims made resulting from an incident that took place during the coverage period, even if the claim is reported at a later date.

A Claims-Made Policy - The more commonly used "claims-made policy" provides protection only while the policy is in force and claims are made during that time frame. Prior-act coverage may also be included; indicating the acts occurring within a specific time period (prior-act coverage period) will also be covered. Claims-made premiums are generally lower than occurrence policies.

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